Converting to Traditional IRA to Roth IRA

[tractng]

Hello,

I have $1500 non deductible contributions made in 2019 (have FORM 8606).  The account is now $2500.  It was an oversight on my part to open the Traditional IRA when I was qualified for the Roth IRA.  Anyways I want to consolidate this small account.  The account is at TIA-CREF.  I also have a Roth IRA there.  I want to convert and move it the Roth IRA. Is that doable?

Also if I do the conversion as of this month, the tax on the earning will be paid next year when I do the tax filing and also use FORM 8606?  Is that simple to do using Turbo Tax software?  I have been using Turbo Tax for over a decade.

Thanks,

TT

[Opus 17]

Yes, you can convert the IRA to a Roth IRA.  From your figures, $1000 will be taxable.  You will receive a 1099-R from the plan custodian. Your tax return will use form 8606 to calculate the tax on the conversion and show your remaining basis in traditional IRAs (which should be zero).  Turbotax can do this, it will ask you for some numbers from your most recent (2019) form 8606.

You could make an estimated payment for the tax at www.irs.gov/payments.  If you over-pay the estimate, the difference will come back to you as a tax refund.  However, since the tax is likely to be $240 or less, you can probably just let it ride until you file your return, that amount of tax owed should not be enough to trigger any penalties unless you are already under-withheld on your other income. 

[tractng]

So now that I know the conversion would be fine from Traditional IRA to Roth IRA, is it doable to "move" into the existing Roth IRA?  If so, its it advisable?

I am thinking the two steps process..

1) convert

2) move to the existing Roth IRA

Thanks again.

TT

[Opus 17]

One step.  It's just a rollover from account A to account B, both at TIAA.  It will automatically be treated as a conversion as well.

If you are familiar with the generic concept of a rollover (transfer from one IRA account to another, at the same or different custodian), then a conversion is just the name of a specific type of rollover -- from a traditional to a Roth IRA, where some or all of the rollover amount is taxable. 

[tractng]

Thank you for the explanation and terminology.  I did call TIAA to execute the rollover with no tax withheld.  I was surprised the rep wasn't able to tell me the total non deductible amount in that account.

So when I get a FORM 1099R, would it tell me what the earning from this account or is that my responsibility?  Like I mentioned, I have the Form 8606 from 2019 Tax filing.

Thanks again.

TT

[Opus 17 · Accepted solution]

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@tractng wrote:

Thank you for the explanation and terminology.  I did call TIAA to execute the rollover with no tax witheld.  I was surprised the rep wasn't able to tell me the total non deductible amount in that account.

So when I get a FORM 1099R, would it tell me what the earning from this account or its that my responsibility on my end?  Like I mentioned, I have the Form 8606 in 2019 Tax filing.

Thanks again.

TT

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It's all on you.  TIAA doesn't know the non-deductible amount because they can't see your tax return and they don't know whether or not you took a tax deduction.  They will provide a 1099-R that shows the total amount as a conversion to Roth IRA with code 2 or code 7 in box 7, and "taxable amount not determined" in box 2b.  You will use the information from the 2019 form 8606 to create a new form 8606 with your 2024 return that will document the basis and calculate the taxable part of the conversion. 

[tractng]

Thanks again!

[tractng]

I got my 1099-R from TIA and imported the form into TurboTax.

After I answered, "Was this Money Rolled Over to a Roth IRA?"
              -Yes, this money was rolled over to a Roth IRA account.

On the next screen I got this.

"Check Your 1099-R"
-You have indicated that you rollover a traditional IRA into a Roth IRA with a Code "G" in box 7. If you converted a traditional IRA to a Roth IRA, your 1099-R should have a Code 1, 2 or 7. If your distribution is not from a traditional IRA, then the IRA box on your 1099-R should not be checked.

Select "Continue" to go back to review your 1099-R. If you entered your 1099-R as you received, we recommend that you contact the financial institution that issued the 1099-R so it can be corrected.

note: these items on the form
Box 2a Taxable Amount is 0.

Box 7: G-Direct rollover and rollover contribution
   - Also the IRA/SEP/SIMPLE box is checked on my copy of the 1099-R under box 7

Please advise.  Do I need to call TIA or just leave it as and continue?  How do I trigger form 8606?

[Opus 17]

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@tractng wrote:

I got my 1099-R from TIA and imported the form into TurboTax.

After I answered, "Was this Money Rolled Over to a Roth IRA?"
              -Yes, this money was rolled over to a Roth IRA account.

On the next screen I got this.

"Check Your 1099-R"
-You have indicated that you rollover a traditional IRA into a Roth IRA with a Code "G" in box 7. If you converted a traditional IRA to a Roth IRA, your 1099-R should have a Code 1, 2 or 7. If your distribution is not from a traditional IRA, then the IRA box on your 1099-R should not be checked.

Select "Continue" to go back to review your 1099-R. If you entered your 1099-R as you received, we recommend that you contact the financial institution that issued the 1099-R so it can be corrected.

note: these items on the form
Box 2a Taxable Amount is 0.

Box 7: G-Direct rollover and rollover contribution
   - Also the IRA/SEP/SIMPLE box is checked on my copy of the 1099-R under box 7

Please advise.  Do I need to call TIA or just leave it as and continue?  How do I trigger form 8606?

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@tractng  The 1099-R instructions say to use code 2 or 7 if the plan sending the distribution knows it is a Roth conversion, even if it is at the same trustee.  It seems the 1099-R is wrong and TIAA should have used code 2 or 7 depending on your age.  You can contact them and ask for a correction.   (see page 4 of the instructions, https://www.irs.gov/pub/irs-pdf/i1099r.pdf)

However, I think you probably already have a form 8606, and I think you can file without waiting for the corrected 1099-R.  Did your taxes go up/refund go down when you entered the 1099-R?  @dmertz  what do you think?

[dmertz]

Code G in box 7 with the IRA/SEP/ SIMPLE box marked and $0 in box 2a reports a direct rollover from a traditional IRA to a traditional account in an employer plan like a 401(k), never a rollover to a Roth IRA.  Since that is supposedly not what happened, you must obtain a corrected to this Form 1099-R from TIAA-CREF.

Entering the form as is will not produce a correct result on your tax return.

[tractng]

The refund did not go up or down.  I only have form 8606 from 2019 Tax year when I made the $1500 non deductible contribution.  So how do I trigger form 8606?

Also I need to call TIA for an updated 1099-R?  Seems like there is a lot of confusion on this part.  I have spent a few hours reading past posts.

I looked at the pdf on the 2024 Tax (1040) and saw line 4b zero.

[tractng]

I noticed if I follow this JohnB5677, I will reduce my tax, etc, and then will ask if some was nondeductible.  So many conflicting answers.

https://ttlc.intuit.com/community/retirement/discussion/1099-r-box-7-code-g-with-ira-sep-simple-box-...

Let me try to call TIA.  Sounds like box 7 should have "2" in my situation.  I am 51 this March :-).

[tractng]

Oh My!!!  Just spent over an hour with the TIA support and I got the right guy.  The amount was rollover from a Traditional IRA to a 403b (pretax account).  I had many times told the person who was helping me last October to rollover to the "Roth IRA".

So does that mean my $1500 non deductible amount in 2019 into the Traditional IRA is lost forever? 

TT

[dmertz]

Technically, basis in nondeductible traditional IRA contributions is not permitted to be rolled over to a 403(b), so it would seem that the $1,500 should be removed from the 403(b) as an excess contribution along with the attributable net income.  The $1,500 (not the attributable net income) could then potentially be deposited into a Roth IRA as a late conversion (a late rollover because a Roth conversion is a particular type of rollover) under IRS Rev. Proc. 2020-46 due to financial institution error.

[tractng]

Let me call TIA tomorrow.  So you you are saying the $1500 basis would be taken out and put in to the Roth IRA.  The remaining stays in the 403b?

Just looking ahead before I talk to the support.

Do I get the following based on the outcome above.

1) an updated 1099=R

2) two 1099-R

3) use the current 1099-R and will get another another form next year